US markets overreacted to Jeremy Powell’s commentary on rate hike: Expert Ajay Bagga tells Anil Singhvi

In an exclusive conversation with Zee Business Managing Editor Anil Singhvi, the market expert Ajay Bagga decoded the Dow Jones fall of around 1000 points, stating the US markets have overreacted to US Fed Chair Jeremy Powell’s commentary on the rate hike in May 2022 by 50 basis points (bps). 

Besides, the global investment bank Nomura had also estimated in its report that the key rates hike by 75 bps during June-July is possible, Bagga further said in a chat. 

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On Friday, the US indices tumbled over 2.5 per cent each, as Dow Jones slipped by 981 points or 2.82 per cent, followed by S&P 500 down 2.77 per cent and Nasdaq down by 2.55 per cent. 

According to the overall yield curve of America, Bagga said, a rate hike of 50 bps in May has also a probability of 97 per cent, while 75 bps in June has around 30 per cent probability.  

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By the end of the year, the US Fed is aiming to normalize the interest rates between 2.75-3 per cent, the market expert said. 

On April 29, 2022, the US core inflation data is expected, which is estimated to rise. US Fed shall monitor the data, Bagga said, adding further that the US inflation is at its peak. It may peak this month or mostly next month and after that, it is seen to reduce.  

The US Federal Reserve FOMC (Federal Open Market Committee) meeting is scheduled on May 3-4, 2022. Bagga said the rates are likely to raise with an aim of tightening the liquidity. This tightening is called QT (quantitative tightening), he added.